The Cost Killer Cometh

Celebrity CEO Carlos Ghosn on his MO, the China challenge and the future

Although Japan's economy is on its knees right now, the world's top automakers are Japanese. Why is this the case?

There is one particular strength existing in the Japanese car industry: a high level of dedication to processes. As you know, Japanese people are extremely disciplined and devoted. They pay a lot of attention to processes. In a way, if there is no process, there is no production. You can see it in the culture, you can see it in the industry and you can see it at the level of service. If you do have processes, you have a higher level of work and reliability.

Our industry is complex and requires a lot of processes. There are many factors, but if there is one thing I would attribute the success to in Japan, it's the natural attention to detail and processes. This leads to quality.

American and European companies have not been able to copy companies like Toyota. Is this because they cannot copy the culture of Japan?

I don't think so. If there was a missed opportunity in the American ODM or the European ODM, it's that they didn't learn enough from their alliances, largely because they made alliances with minor players. And it's very difficult to learn from smaller players. There is a tendency to say, "We already know that" or "That's not important." We didn't have that problem because when we made our alliance, the two companies -- Renault and Nissan -- were about the same in size and compatibility, at least in 1999. Even though you have that gift for processes in Japanese culture, there was a missed opportunity in exchange.

Take a look at how many Japanese executives took positions in North America and Europe. You don't even need a hand to count them. The first thing you need is an exchange of people. Some of them don't prevail, but this is a price you have to pay.

Is Renault-Nissan 'bicultural'?

Oh, it's many cultures. Of course you have the French and Japanese cultures. But also the American culture is very important to us. And now you have the Chinese coming in. Many people here probably know that Nissan is the company that has invested most in China, which is true -- even though when you read the media it's not obvious. And now the Chinese -- and we're learning to work with them -- are going to have an influence in Nissan. So it's not just a question of French and Japanese. It's also American, Chinese, Brazilian ... every time you have a pool coming into your company, you have to integrate this pool.

That's why I think global and cross-cultural is going to be more and more important. I'm not talking about the mundane. It's efficiency and speed we're talking about. Cross-cultural exchange is going to be critical to fundamental performance.

Historically, a lot of companies have had disasters in China. For example, GM is releasing a car next year -- and a counterfeit in China has already been produced.

Yes. Protecting your intellectual assets in China is a challenge for everyone. But I think as China emerges in the global scene, those practices will become marginal. Because it's a big player, and you must play by the rules as a big player. But companies must be organized to prepare for such practices today.

Even with all the piracy, though, China is one of the most profitable markets for car manufacturing. If you take the average manufacturer, profitability in China is comparable to that in the US.

But how do you get the money out?

Well, as China becomes normalized, the rules will loosen little by little. Today, most profit is reinvested in China-based operations, because the economy is still developing. Some of the profits go to the headquarters, but some is done locally and reinvested -- because everybody's growing in China. You have about 1.3 to 1.4 million cars being sold in China today. This is lower than Brazil. We are talking about a population six times that of Brazil, and an economy with much more potential to grow. So reinvesting is not a problem.

Where is Nissan headed, with the US topping out and the dollar weakening?

Revitalizing Nissan has been a continuous battle against skepticism, to be polite. For example, the way we were seen in 1999 -- the relationship between Renault and Nissan was summarized by one CEO of an automaker who said: "Two mules don't make a racehorse."

Then, when I arrived in Japan, I had the sticker on my back saying "cost killer." And people said, "This guy doesn't know Japan. It's not what Nissan needs."

So we started with the revival plan and made a product plan recovery. To be able to do that, as the most indebted car manufacturer in the world at the time, with up to $19 billion in debt, we had to generate the resources internally. Nobody was going to lend us money. So we sold our assets and reduced our costs to explain what we were going to do, and we did exactly what we said we'd do. People then said, you made profits because you sold your assets.

In 1999 we had a 1.4 percent operating margin. In 2000, we had a 4.75 operating margin. Then, at the end of the plan, we had a 7.9 percent operating margin. People said, okay the cost killer can reduce costs and sell assets, but let's see if he can sell new products and grow this company.

We came up with the Nissan 180. We are not playing with expensing or window dressing. Same accounting standard, zero debt. Anybody can measure this. I don't have to make a big speech.

Basically, you are worth what your performance is. When your business has bad results, you cannot say you have good management.

By 2001, we were at least the finalists of "new car of the year" -- if not the winner -- everywhere. It was very refreshing. We know how to make attractive cars, and there will be more to come.

In 2002, a difficult year for everyone, we grew by 10 percent. We forecast another 10 percent growth for this year in revenue.

Little by little the battle against skepticism is going forward. First we come back to profit, second we eliminate debt, third we make an attractive product and then we seek growth. The next step is technology.

I discovered that the skepticism is very good because it's stimulating for Nissan people, because they want to prove they are capable of doing much better than they have in the past. I love when an analyst is negative, because I use the analyst and say: Guys, we have to demonstrate that this guy is wrong.

It's great showing that any "hopeless" case can be extremely valuable.

What about the weaknesses in the US?

You sound like one of those people who thinks profits are linked to volume. There are many companies that are driven by market share and volume, and they destroy a lot of value. Many analysts fall into this trap. They think increasing volume is good for shareholders.

But it's not.

Market share should be a consequence, not the objective. People in this industry make this mistake all the time.

There is no risk in the US for us. It's an opportunity. It's not the market share which is important. Mix is far more important.

We have cars like the Infinity, then the Centra. If I grow my shares selling more Centra, you'll be happy. But then if I show you the results, you won't be happy. Volume alone does not increase profit.

We are a value-builder for the long term, so I'm very optimistic about opportunities in the US.

From Renault's point of view, the alliance with Nissan has been a fabulous one. Should the name change to Nissan-Renault?

We knew from the beginning that if we entered this saying, "I'm the rescuer, you guys shut up and we'll tell you what to do," we'd fail. From the beginning we said this would be a partnership, meaning respect for culture, brands, separate identities and shareholders. Again people were skeptical, saying it always starts like this.

But we wanted to attain value. When one of the partners is gaining strength, it's an opportunity for the other partner to learn.

Now there is a Ghosn-premium. The share prices are actually boosted by you.

The leader of the company has an influence on the value of the share. It's rewarding to hear that you're worth this much yen per share, but it's not so good for the company. The value of the CEO should be zero -- if the CEO leaves, it should not affect the value of the share.

We now have to address the delicate period of 2005. I will remain with Nissan, despite the rumors, even as I move to Paris. A COO will be needed to make sure that after a period of intense management and focus we don't fall into a period of looseness. I'm not leaving. I'm going to divide myself, living in an airplane instead of a flat and overseeing two companies.

You've become a celebrity here in Japan. That must affect you. Now that you're moving back to Europe, will the transition be difficult?

Again, every person who has revived a company and fought skepticism knows that you are worth exactly what your results are. Nothing more. So I'm under no illusions. @